Part 3 – If No Taxes are Withheld……

Tip #3 If no Taxes are Withheld, Set Money Aside to Be Prepared for Tax Time:

If your child’s employer does not take your child on as an official employee, but as an independent contractor for temporary summer work, you need to know the following information.

Your child’s paycheck will not include any deductions for Social Security and Medicare tax, nor will there be any withholdings for federal or state income tax.  If $600.00 or more is earned from this employer, your child should receive a 1099-Misc. at the end of the year.  Most likely the income will be shown as “Non-employee Compensation” in box 7 of the 1099-Misc.  This is treated as self-employed income and is subject to self-employment taxes.  In this case, your child must file a return if earnings were at least $400.00.  Be aware that because the employer did not withhold and pay any taxes on behalf of your child, taxes may be owed when tax returns are filed the following spring.  It would be a good idea for your child to set aside money from each pay check so that he or she can pay the tax when the returns are filed.

STAY TUNED FOR:

Tip #4 Know the Tax Implications of Employing your Child: